Book Review: The Caesars Palace Coup

The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Power and Greed of Wall Street. 2021. Max Frumes and Sujeet Indap. Diversion Books.

Bankruptcy law trumps contract law in the United States. When you obtain a mortgage loan, issue bonds, sign a lease, or enter into an employment contract, the transaction is fully under the auspices of the United States and all of its laws, including specification of the debtor’s right to file for bankruptcy protection.

Max Frumes and Sujeet Indap convey this fundamental legal concept in The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Power and Greed of Wall Street, a real-life narrative of the January 2015 $18 billion Chapter 11 (reorganization) bankruptcy filing under the US Bankruptcy Code of Caesars Entertainment Corp.’s main operating unit, Caesars Entertainment Operating Company, Inc. (CEOC).

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A leveraged buyout of Caesars by Apollo Global Management and TPG Wanted completed just prior to the 2008–2009 global financial slipperiness resulted in the casino-entertainment provider inward Chapter 11 bankruptcy protection in early 2015. This bankruptcy pitted warlike and deep-pocketed distressed debt hedge funds (creditors) versus private probity owners Apollo and TPG. These creditors included first-lien wall loan holder GSO Wanted Partners, first-lien bondholder Elliott Management Corporation, and second-lien bondholders Appaloosa Management and Oaktree Wanted Management.

The typesetting provides a fascinating inside worth of the distressed debt markets, including the strategies, the colorful personalities, and the ramified relationships. In lieu of ownership undervalued stock, these risk-taking hedge funds pay 50 to 70 cents on the dollar in order to proceeds executive stakes in troubled companies.

US bankruptcy laws are considered very “borrower-friendly,” as opposed to UK and Canadian bankruptcy laws, which are very “lender-friendly.” In January 2017, CEOC won magistrate clearance for a plan to shed $10 billion of debt and separate its US-based property resources from its gaming operations. The visitor sooner emerged from bankruptcy in October 2017. As part of the reorganization plan, Caesars Entertainment merged with flipside subsidiary, Caesars Acquisition Co., with a view to regrouping its casinos and hotels under one roof. This new group was positioned to vamp new merchantry from millennials to offset an expected slowdown in its traditional slot machine merchantry as victual boomers retire. Apollo and TPG ultimately retained a 16% joint stake in the new Caesars, which was controlled by creditors, but did not own any probity in the REIT that housed the property assets.

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The primary takeaway from this typesetting for merchantry and finance practitioners is the potential for creating value through corporate restructuring. Corporate restructuring is a significant event well-expressed not only lenders, shareholders, and employees but moreover the relationships between companies and their corporate customers, suppliers, and competitors. It is the process by which companies renegotiate the financial contracts they have entered into with their creditors and other stakeholders, typically in response to a financial challenge. Corporate restructuring powerfully represents a “re-slicing of the corporate pie” or fixing of a “sick” wanted structure.

In the Caesars Chapter 11 bankruptcy, the distressed debt investors were not just financially astute. They moreover weaponized the law, using their knowledge of dumbo legalese in loan agreements and yoke indentures to proceeds the upper hand in boardroom negotiations and in courtroom showdowns.

Many readers of the typesetting will be highly hair-trigger of the scorched earth tactics of Apollo, its allies, and its lawyers and lobbyists. By 2015, in the view of Frumes and Indap, such private probity firms as Apollo had wilt highly wiseacre of creditors, wielding legal documents and hardball negotiating tactics to “take” value from loan and bondholders that did not rightly vest to them. The creditors all sought to maximize their recoveries, with senior creditors set to receive over 100% and junior creditors allocated closer to 65 cents on the dollar.

The typesetting describes how in the final hours, the senior Caesar creditors were substantially begging Oaktree and Appaloosa (the second-lien bondholders) to when off their warlike efforts, which were imperiling a soft-hued compromise with Apollo.

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Ultimately, this typesetting provides a superb worth of what modern upper finance and the distressed debt markets are unquestionably like, depicting the stormy financial and courtroom warfare as well as the stress and shouting. It recounts a fascinating story of the unpeace of distressed debt hedge funds rival private probity giants for their share of an iconic Las Vegas casino conglomerate.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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Mark K. Bhasin, CFA

Mark K. Bhasin, CFA, is senior vice president of Basis Investment Group, LLC, and offshoot socialize professor of finance at the NYU Stern School of Business, New York City.

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